Issuing debt can be a daunting and time-consuming effort,especially for CFOs at small or midsize companies that go to marketinfrequently. David Pritchard and Jonathan Cunningham, founders ofAequitas Advisors in Stamford, Conn., argue that while CFOS atlarge public companies with well-staffed finance departments mighthandle such tasks on their own, a CFO at a company with fewerresources or less experience in this arena should consider workingwith an independent capital markets advisory firm.

“The vast majority of corporate CFOs only approach the publicmarkets very intermittently, coming to raise capital every three,four to five years,” Pritchard points out, adding that it behoovessuch companies to seek help in getting the best deal possible inwhat can be a highly conflicted and complex marketplace.

Pritchard, pictured at right, says the practice of hiringadvisers for corporate debt issuance is common in Europe but isonly now starting to gain traction in the U.S. Independent advisoryfirms such as the Rothschild Group, based in Europe, now offerthese types of services to U.S. companies, along with M&Aadvice, as do a growing list of U.S. boutique investment banks,such as Greenhill & Co. and Moelis & Co.

Roy C. Smith, a professor of finance at New York University'sStern School of Business, says 75% of investment banking businessis shared by 10 financial firms such as JPMorgan and Goldman Sachs;another 15% by a host of boutique investment banks such asJefferies & Co.; and the remaining 10% by specialized advisoryservices that deal with areas such as M&A, restructuring,distress and corporate issuance. Also in the mix are regionalbanks, such as SunTrust and Regions, that provide financingservices to small and mid-market companies.

But Pritchard says there aren't many firms like his that targetmid-market or small companies and focus on corporate debt orconvertible securities transactions. Pritchard spent ten years atJefferies as a specialist in this sector and his co-founder,Cunningham, spent 18 years at Jefferies, rising to head itsconvertible securities division. They've been running Aequitas(Latin for “fair trade”) for a year and a half.

“Our motto is that an informed issuer will obtain the bestresults,” says Pritchard, who sees an inherent conflict in theinvestment banking industry's debt issuance process.

There's a common misconception among corporate executives thatonce a company selects an investment bank, the bank is workingsolely on the company's behalf as it issues the company's debt, hesays. “What companies need to appreciate, perhaps more fully thanthey do, is that when they retain an investment bank to do afinancing for them, that bank is going to sell that company'ssecurities through their own internal sales force, who have anallegiance and loyalties on the opposite side of the transaction,while the investment banking group has allegiance to the corporateissuer.”

Pritchard is quick to say that this does not mean that banks areup to no good, but he notes that many investment banks “may do someof their best work when they know they are being closelywatched.”

So how can advisory firms such as Aequitas helpcorporations?

Michael Biehl, CFO at Chart Industries, a Cleveland, Ohio-basedmanufacturer of equipment for the industrial gas industry with$794.6 million in 2011 revenue, and an Aequitas client, says havingan adviser “looking over your shoulder” can make the bank selectionprocess far more competitive and weed out banks that are not up tosnuff or familiar with more complex deals. Once the selection ismade, an independent adviser can monitor the bank and its marketingefforts, says Biehl, helping to make sure the bank is doing themost for the company's issue at all stages of theprocess.

Biehl, pictured at right, says he also benefitted fromhaving Aequitas talk to his company's board about the complexitiesof a recent refinancing, explaining all of the risks in detail.“You need someone who can provide support to your team but can alsogive the board comfort in terms of the complex deal process, how itworks and what to expect.”

Pritchard says Aequitas does its best work when it is brought inearly in the process. “We want to help companies manage thecompetitive dynamics during the bank selection process—known as a'bake-off'—when investment banks come to offer their services,helping the issuer to win a more favorable fee,” he says, notingthat there are both direct and indirect costs associated with debtdeals.

CFOs or their advisers should be negotiating not just for lowerfees and better deal structures during the bank selection process,but also lower interest rates on the debt, as well as otherspecific terms, conditions and wordings in debt covenants that canpreserve value for the company in the event of a range ofscenarios, including the acquisition of the company, Pritchardsays. “The documents on these deals may run 40 to 50 pages long,”he says. “They can significantly impact a firm's financingflexibility and profitability moving forward.”

Even when lawyers are advising on such deals, he says, they mayturn to debt experts to help iron out or renegotiate thedetails.

On one recent deal, Aequitas assisted Chart Industries with itsrefinancing of $163.2 million of outstanding 9.125% seniorsubordinated notes due in 2015. Working as an extension of thecompany's management team, Aequitas helped assess financingalternatives, leveraged the dynamics between competing banks, andprovided input on deal terms and provisions. This resulted insavings for its client in terms of direct costs, such as deal feesand terms, as well as indirect costs, including enhanced processand structural efficiency, Pritchard says.

As a result of these efforts, Chart Industries issued $250million senior subordinated convertible notes due 2018, pricing“strongly,” Pritchard says, in an extremely volatile market. “Thefirm realized among the strongest terms and lowest fees for acomparably sized and rated company.”

Despite such outcomes, NYU's Smith says independent advisoryfirms face critical challenges in the days ahead. “There may besome CFOs who want someone who can whisper in their ear,” he says,in part because investment banks are held in such low esteem thesedays and an independent firm may be viewed as more trustworthy.

But Smith says CFOs shouldn't underestimate the global reach andknowledge base of the large investment banks and adds that futureshifts in investment banking may not favor the boutiques. “Do theyknow the benefits of an Australian dollar issue versus a euro bondissue? And can an independent firm provide access to the cheapest,global market?” he asks.

Pritchard takes a more upbeat view of his firm's prospects.“There is a great deal of value embedded in the details of thesecontracts,” he says. “Our view is that the degree to which yourentire capital securities process is managed diligently, withcalculation and recalculation, the better chance you have that yourcorporate issuance will produce the results you want.”

For a look at how real estate brokerage company Realogyrestructured its outstanding debt amid the financial crisis,see Debt Do-Over at Realogy.